For most businesses, effective supply chain management can get complicated. Not only must the hardware–heavy companies purchase a lot of goods and services, but they must also ensure that those items arrive on time. Otherwise, business operations can be affected when times arrive late, don’t arrive at all, or even pile up because procurement ordered too many.
Fortunately, for many manufacturing companies, there is an excellent technology solution — integrating EDI and ERP. Let’s talk about what these two technologies are, how they can work together, and how data integration can benefit your business.
Introduction to EDI and ERP
before we dive into all the details, let’s take a quick look at what each technology is and how it works. Then, it’ll be easier to see both how an EDI solution can help your business and how it pairs with an ERP.
What is EDI?
EDI, better known as Electronic Data Interchange, is a series of protocols that makes it much easier to send documents between one business and another. Developed in the 1960s and popularized in the 1980s, EDI lets businesses skip many of the old-fashioned intercompany communication tools. For example, it used to be that contracts would be signed and faxed and that this would happen every time a business purchased something from a supplier.
Needless to say, this heavily manual form of communication led to a lot of delays in transactions. A supplier could not ship before they received a PO for each item, and the purchaser wouldn’t pay until they got an invoice. With the advent of computers, some of these tasks became computerized, but only to a point. Without EDI, a business must still type in every document, and the supplier must manually read every document.
EDI software solves the communication issue by automating the exchange of transactional documents. In addition, you can use EDI protocols to send shipment confirmations, bills of lading, customs declarations, and more. Best of all, with EDI protocols, your documents are not only computer-generated but computer-read. This takes a lot of the guesswork out of reading other companies’ documents.
What is ERP?
ERP, or Enterprise Resource Planning, is a complex application that monitors and organizes everyday business activities. These activities can include purchasing and procurement, legal compliance, and certain accounting tasks. While they don’t eliminate the need for human input, they definitely reduce the company’s reliance on personnel to perform basic tasks.
Chances are that as a hardware-heavy startup, you have some level of an ERP. Frequently, the ERP will work with other pieces of software, such as your ordering systems and payment processors, to make sure that your business remains on a sound footing. This type of company-wide data integration also facilitates timely, accurate expense reporting. Your executive team can then use ERP data to plan ahead.
Benefits of integrated EDI and ERP
All of this sounds very complicated. In particular, a lot of executives who are unfamiliar with IT terms and various solutions available for their businesses can quickly become confused. Plus, you’re probably getting bombarded with messages that you “need” a particular piece of software right now.
EDI software is likely no exception to this rule. So, why should you select an EDI solution? Let’s look at the reasons why becoming EDI compliant is beneficial for your business, both now and into the future.
You will get better accuracy
One of the biggest EDI transaction advantages is that your staff is less likely to make mistakes. After all, the more times a document is copied, the more opportunities there are for copying errors. Some of these errors can be quite serious — for example, if 1000 widgets become 10,000 widgets, your accounting department will get a bill 10 times higher than intended, and your warehouse will receive 10 times as much of the affected item.
You will have lower labor costs
Especially in an age of labor shortages, most businesses need to maximize the value they get out of their talent. With automation like EDI and ERP, one employee can be much more productive because they only work on high-value tasks.
Of course, not needing as many people to perform important supply chain functions also saves money. You can take better care of a smaller number of employees, each of whom is more dedicated to your company and the work that they do.
Seamless data integration
Many companies can benefit from data integration. The biggest reason for this is accuracy, both for ordering and for reporting. In other words, it is critical for most businesses to have an accurate picture of their operations and company finances. Combining your ERP with electronic data interchange helps to ensure that you always have the right information available when you need it most.
Suppliers appreciate working with EDI-compliant companies
For many suppliers, working with a buyer that uses EDI is much easier. Not only do they not have to worry about mistakes, but they also reap similar benefits as the buyer in terms of reduced staff demand and the risks of transferring data. Not only that, but communication is generally faster. That’s because nobody will need to get on the telephone and call the other company for clarification, except in the rarest of circumstances.
Ordering and payment are much faster
Related to the last point, EDI is a solution that helps ensure that each transaction takes place quickly and accurately. For instance, because you don’t need to catch somebody on the telephone to place an order, and can even order something on nights and weekends, you can perform that task much faster overall. Likewise, the supplier can send an invoice that matches the PO automatically. Then, all that needs to happen is for accounting to review and pay the invoice.
There’s less paper waste and clutter
When you exchange most documents electronically, there’s a lot less paper to file. In fact, having fewer filing cabinets at your headquarters helps save the environment, preserve cash, and reduce the chances of loss. In fact, EDI transaction records can easily be backed up by your company’s chosen online storage provider or even on an external hard drive. This way, document retention will be as painless as possible.
Improved supply chain visibility
Another great thing about EDI technology is increased supply chain visibility. For example, suppliers can and often do send shipping notices via EDI, allowing you to see when the shipment is likely to arrive. Sometimes, you’ll even get notices on the shipment progress if that’s part of your supplier’s capabilities.
Reduce out-of-stock events
Similarly, if you are the seller, then an EDI and ERP integration can help you see when it’s time to restock a popular item. In this case, you can do it before an out-of-stock situation occurs. For example, you can program your ERP to order new widgets when your inventory gets below a certain level. The related PO would be automatically issued to the supplier via EDI technology, and the order would be on its way before you know it.
Better relationships with your customers and suppliers
Finally, integrating EDI capabilities into your ERP can help improve your business relationships. For suppliers, it means that working with you is much easier, from contracting to ordering and payment. Customers can also benefit because they will get standardized shipping notices from you and because you will have fewer problems with sadness being out of stock.
While it’s impossible to plan for every contingency, by planning ahead and automating many of your ordering tasks, you can minimize the risk of unstable supply chains. In turn, by showing customers what to expect from you, the doctrine of no surprises will make everyone happier. Even when there’s bad news, such as in order delay, communication goes a long way.
Integrating EDI and ERP
Ready to try ERP-integrated EDI for your business? To perform this task, you will need your ERP, procurement software, and EDI provider to talk to each other. Usually, the easiest way to do this is with an API. You can build a custom API, or you can choose an EDI provider that has premade APIs for the other software that you use.
This way, you can make sure that your business rarely runs out of supplies unless there are supply-chain issues outside of your control. Fortunately, quality procurement software like ControlHub can help you order the right supplies at the right time and also source alternative supplies when necessary. Then, all you have to do is complete the EDI transaction.
There is little question that an integrated EDI solution is valuable for your business. It saves a lot of time, money, and resources. In addition, you can enjoy better relationships with your customers and suppliers through streamlined communications. Fortunately, with ControlHub, it’s easy to achieve these benefits and many more.